(Bloomberg) — The UK received solid demand for a bond sale Tuesday, as investors took advantage of the higher yields on offer following the recent selloff.
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The Debt Management Office sold £1 billion ($1.2 billion) of 30-year inflation-linked bonds, which was oversubscribed 3.06 times. That compares to around 3.1 times at the last sale by auction of similar securities a year ago.
UK assets have been hit hardest among developed economies in the recent global bond slide amid mounting concern about government finances and sticky inflation. That sent yields to the highest in decades and took the pound to the weakest level in over a year.
The increase in rates comes at an unfortunate time for the new Labour government as it seeks to borrow near-record sums this fiscal year and make good on its manifesto pledges against a darkening market mood. A week ago, an offering of regular 30-year bonds was the least oversubscribed since 2023.
The yield on 30-year inflation-linked debt was poised to snap a six-day advance on Tuesday, falling two basis points to 2.13%. It’s still up more than half a percentage point since the last sale by syndication in November, with the yield closing above 2% for the first time in more than two decades last week.
There won’t be any let-up in the sales. Tuesday’s offering will be followed by a £4 billion auction of 10-year notes on Wednesday. Next week will see a sale of three-year debt as well as an offering through banks of bonds maturing in 2040.
And the final week of January will conclude with sales of 10-year inflation-linked securities, green debt and a Bank of England operation to sell long-maturity bonds from its holdings purchased during the era of quantitative easing.
Budget Scrutiny
The rise in borrowing costs is eating into the little fiscal wiggle room Chancellor Rachel Reeves’ has left. Scrutiny is now on how she will rebuild her budget headroom, with the options being to raise taxes, cut government spending, trim welfare, rein in her investment plans or let borrowing rise.
Reeves will speak to lawmakers later Tuesday for the first time since last week’s turmoil.
Global Bond Tantrum Is Wrenching and Worrisome Start to New Year
–With assistance from Greg Ritchie.
(Updates throughout with result of auction.)
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